Law:

Section:

Section 256, read with section 37(1), of the Income-tax Act, 1961 - Reference - General principles - Assessee-firm required higher electricity load in order to cope with heavy electricity requirement for manufacturing purposes - In this connection, it paid certain sum to State Electricity Board for installation of poles and additional power lines - Installation remained property of Electricity Board - Tribunal allowed deduction of impugned sum paid to board as revenue expenditure and rejected revenue's prayer for reference of case under section 256(1) - Whether question of impugned expenditure being revenue expenditure or capital expenditure was a question of law but its reference was not necessary since it was concluded in assessee's favour by Supreme Court's decision in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 - Held, yes Section 37(1) of the Income-tax Act, 1961 - Capital or revenue expenditure - Whether expenditure incurred by assessee-manufacturer on installation of poles and power lines in connection with obtaining higher electricity load for manufacturing purposes was revenue expenditure - Held, on facts, yes Facts In the assessment year 1974-75, the assessee, a registered partnership firm manufacturing cattle food, paid a sum to the State Electricity Board for the installation of poles and additional power lines, in connection with the grant of higher load by the Board to it to enable it to cope with the heavy load required for manufacturing purposes. The installation remained the property of the electricity board. The assessee claimed deduction of the said expenditure as a revenue expenditure. The ITO, however, disallowed the assessee's claim. The AAC held that the impugned expenditure was of revenue nature. The Tribunal affirmed the AAC's order and held that the expenditure was incurred with a view that the existing set up of the assessee could function more efficiently and refused to refer the case to the High Court under section 256(1). On an application under section 256(2), the revenue contended that the question which arose on the facts found proved by the Tribunal, namely, that the expenditure incurred by the assesses was of the nature of…

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